LinkedIn investment evidence of wacked values

Commentary: VC round implies a sharp valuation discount to Facebook

SAN FRANCISCO (MarketWatch) - LinkedIn's new round of venture capital investment is yet another example of the disparate - and sometimes whacky - valuations being assigned to the social networking space.

LinkedIn CEO Dan Nye wrote in a blog posting Tuesday that the professional networking site raised an additional $53 million in funding, giving the company an overall valuation at slightly over $1 billion. See full story.

If so, that implies a sharp discount to the valuation assigned to Facebook, the current heavyweight in the social networking space. Facebook got a hefty valuation of $15 billion last year after Microsoft Corp.
MSFT, -3.39%
bought a 1.6% stake in the college-oriented social networking site for $246 million. Many have said since that this valuation is probably now a bit lofty, since Facebook is expected to do only about $300 million to $350 million in revenues this year. But it shows the hopes for Facebook's potential to sell targeted ads to its users based on a wide array of information in their profiles.

By contrast, LinkedIn has a different - and possibly more sustainable - business model. Many of LinkedIn's 23 million subscribers pay for premium services on the site, such as job listings, better search capabilities and more networking tools for professionals. The company also sells services to corporations. Revenues are expected to be about $100 million this year.

LinkedIn also had a torrid growth rate in May, beating the nine other top social networking sites, according to Nielsen Online. In May, LinkedIn's monthly unique visitors soared 146% to 7.7 million compared to the same period last year. Facebook's monthly unique visitors grew 83% to 26 million in May.

Facebook's larger audience and revenues are probably the core reason for the diverse valuations. The Palo Alto company said it has 80 million active users compared to the 23 million claimed by LinkedIn. Interestingly, investors seem to be placing a premium on Facebook's user base of mostly high-school and college students compared to LinkedIn's more professional crowd. The valuations imply about $188 per Facebook user compared to about $44 per LinkedIn user.

Facebook definitely has the coolness factor, with a clean user interface and many features that have been copied by LinkedIn for its professional audience, such as updates on contacts and who they have connected with, or groups they have joined. And while Facebook started out as a social network for college students, at least in Silicon Valley, it has become a venue for professionals to post events and discuss topics, as well as a database of contacts.

Still, a $15 billion valuation for a social network that is still trying to solidify its revenue base seems steep. Maybe LinkedIn's investors saw a bargain and jumped on it.

- Therese Poletti

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